Withholding

How it works

A distribution is deducted from before it is paid, by somebody upstream of you. That is the whole mechanism, and everything awkward about it follows from the deduction happening at source rather than at filing time.

The US case shows the shape. The IRS states that most types of US-source income received by a foreign person are subject to US tax of 30 per cent, and that a reduced rate — including exemption — may apply where an Internal Revenue Code section provides one or where there is a tax treaty between the foreign person's country of residence and the United States. Which reduced rate applies is not a single number either: the IRS publishes treaty tables, of which Table 1 covers income other than personal service income under Chapter 3 and the income tax treaties, and the taxpayer's job when filing Form W-8BEN or W-8BEN-E is to determine from them the proper rate to claim and the article under which relief is requested.

Three facts about that arrangement matter more than the rates.

It is a property of the pair, not of the security. The same dividend from the same company pays out at different net rates to holders resident in different countries, and to holders in the same country whose documentation reached the withholding agent in different states. So there is no correct net dividend for a security that a shared database could store — only a correct gross one, plus a rate that is specific to you.

It happens before the cash exists. Nothing arrives and is then taxed; the payer deducts and remits. The consequence is that a broker statement records the net figure as the transaction, and the gross figure may appear as a separate line, or as a note, or nowhere.

Reclaimable and non-reclaimable are different quantities. Part of an over-deduction can sometimes be recovered through a treaty claim or a refund procedure in the source country, and part cannot be recovered at all. Performance reporting treats the two separately: the GIPS standards recommend that returns be calculated net of non-reclaimable withholding taxes on dividends, interest and capital gains, with reclaimable withholding taxes accrued instead — and require a firm to disclose whether returns are gross or net of withholding taxes where material, and whether the benchmark's returns are net of them where that is known. That disclosure requirement exists because the two versions of the same track record differ visibly.

What the two recordings do to your numbers

A tracker stores one figure per dividend, and which one it stores changes three outputs.

Yield. Gross over price and net over price are different percentages on the same holding, and the gap is the withholding rate. A yield quoted anywhere public is gross; a yield computed from what landed in the account is not comparable with it.

Total return. The same divergence compounds. Index providers publish the fork explicitly for this reason — the worked figures in why adjusted close differs between sources show one widely followed global index returning 13.56 per cent a year gross of dividends against 13.01 per cent net of withholding tax over the same ten years, and the gap compounding to a very different level over thirty-eight.

Income forecasts. A projection built on gross distributions overstates the cash that will arrive by the withholding rate, which for a portfolio of foreign holdings is not a rounding error.

Where the deduction lands relative to the dates the payment is announced, goes ex and settles is the corporate action side of the same event, and a tool can get one right and the other wrong.

Why it matters here

In portfolio trackers — and especially in the dividend-focused half of the category — this is handled as a setting rather than as data, and the settings are not equivalent. Stock Events lets you set a global or per-stock withholding percentage so that forecasts are net. Portseido treats it as a portfolio-level setting. Snowball Analytics uses withholding rates to feed an after-tax yield. None of those is a record of tax withheld; each is an assumption applied uniformly, which is fine for a forecast and wrong for a statement. Sharesight is on the other side of the line for three countries, where its reports run jurisdiction-specific logic rather than a percentage.

Reclaims are a separate product again, and usually somebody else's: DivvyDiary hands withholding-tax reclaim to a partner rather than doing it in the app, which is an honest division of labour — a reclaim is a filing in a foreign country, not a calculation.

Two questions settle what a tool is telling you: does it store the gross distribution, the net amount received, or a rate you typed; and does anything in it distinguish tax that could be reclaimed from tax that could not. This is mechanics, not tax advice, and this catalogue is not qualified to give any — the rate that applies to you is a question for the tax authority's own material or for somebody paid to answer it.